Rand falters as public wage cuts may not save SA’s credit rating

The rand fell on Thursday as some analysts predicted that proposed cuts to the public sector wage bill wouldn’t be enough to save the country’s investment-grade credit rating.

At 1525 GMT, the rand was 0.6% weaker at R15.41 per US dollar.

The rand had initially strengthened after Finance Minister Tito Mboweni unveiled the plan to cut the public sector wage bill by R160 billion ($10.5 billion) in his budget speech on Wednesday.

Ratings agencies have cited rising public sector pay as a major fiscal risk. But market optimism soon faded as analysts were sceptical that the government could overcome union resistance to the wage cut plan.

The wage cuts are also insufficient to arrest a steep run-up in government debt and prevent an alarming 6.8% of GDP budget deficit next fiscal year.

Moody’s is due to review South Africa‘s credit rating next month. It is the only one among the big three international ratings firms to rate South Africa investment grade and was yet to comment on Mboweni’s budget speech.

“All told the package is unlikely to be sufficient to convince Moody’s,” said Elisabeth Andreae, a forex analyst at Commerzbank. “Despite the initially positive market reaction to the budget speech we therefore continue to see the rand under depreciation pressure.”

Johannesburg-listed stocks also tumbled, with the Top 40 Index and All-Share Index both closing down roughly 3%.

Among fallers, shares in retailer Massmart dropped more than 5% after it reported an annual headline loss of R1.1 billion.